Crude Oil Prices Tumble as OPEC Maintains Output, Price War Brews"

Crude Oil Prices Tumble as OPEC Maintains Output, Price War Brews"
Crude oil prices sank to new four-year lows on Thursday on the back of the announcement that the Organisation of Petroleum Exporting Countries (OPEC) has decided to maintain its oil output ceiling at 30 million barrels, preferring, as a strategy, to wait for the market to stabilise instead of cutting production quotas.

OPEC’s decision sent world oil prices tumbling, with London’s Brent Light crude for January deliveries falling to $74.36 a barrel while New York’s West Texas Intermediate (WTI) for January slumped to $70.87, triggering the likelihood of a price war among Saudi Arabia, Russia and the United States of America as they battle to maintain market share.

The three countries are the world’s largest oil producers. But whilst Saudi Arabia and Russia would prefer higher oil prices over the $100 range, the US wants cheaper oil to reduce the price of petrol at the pump for American consumers.

Arising from the 166th General Meeting of the body in Vienna, Austria, Kuwait’s oil minister told reporters, despite a global supply glut that has sent crude prices crashing, there will be no change in production from member countries.

The 12-nation oil cartel, which is headquartered in Vienna, has opted to leave its collective daily oil output target at 30 million barrels, even after crude prices have plunged by more than a third in value since June.
The decision was in line with Saudi Arabia’s stance that there should be no production cuts in order to put pressure on US shale oil producers, who would buckle under the impact of lower oil prices.
Unlike oil produced in West Africa and the Middle-East, shale oil is much more expensive to produce, and oil prices of less than $70 a barrel will force US producers to cut output to raise prices.
Before the meeting, Saudi Arabia, the world’s largest oil producer, had been under pressure from Russia (a non-OPEC member), Nigeria, Iraq and Venezuela, whose economies are heavily reliant on crude oil revenue, to accept a production cut.
But Saudi Arabia stood firm in its desire to maintain market share in the face of threats from the US shale boom.

While stating that its decision was perhaps a response to the shale oil and gas phenomenon, OPEC noted its concern over the recent rapid decline in oil prices.
The cartel explained that stable oil prices at a level which does not affect global economic growth, but which allows producers to at the same time generate reasonable revenues and to invest to meet future demand, were vital especially in the interest of restoring market equilibrium.
It however agreed to remain vigilant given the uncertainties and risks associated with future developments in the world economy. In this regard, its secretariat has been directed to keep a close watch of developments in supply and demand as well as on non-fundamental factors such as speculative activity for members to be fully aware of developments.

“As always, in taking this decision, member countries confirmed their readiness to respond to developments which could have an adverse impact on the maintenance of an orderly and balanced oil market,” OPEC’s outgoing President and Libyan Vice-Prime Minister for Corporations, Abdourhman Ataher Al-Ahirish, said in a press briefing after their closed-door meeting.
Al-Ahirish explained that the production level would remain the same for the next six months, when the organisation meets at its next general meeting on June 5, 2015.
He also noted the conference’s forecast of an increase in world oil demand in 2015 by 1.36mb/d from non-OPEC supply.

However, earlier Thursday, Nigeria’s Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, was elected the first female president of OPEC.
This is just as the minister has passed the blame for the delay in the passage of the Petroleum Industry Bill (PIB) on the National Assembly.
With her election, she replaces former president, Al-Ahirish.
She was before her election the alternate president of OPEC and is expected to immediately begin to serve her one-year term at the helm of OPEC affairs.
Her one-year reign at the helm of OPEC affairs will start in January 2015 alongside the alternate president and Algerian Governor for OPEC, Ahmed Messili.
NNPC’s Group Managing Director, Dr. Joseph Dawha described Alison-Madueke’s election as an exciting development for Nigeria.

“We know that she is capable of handling the demands of the office,” Dawha said.
Speaking on the outcome of the meeting, Alison-Madueke said non-OPEC oil producers would have to share in the burden of future production cuts.
“I think $70 is a challenge for most oil producing countries not just OPEC. I think all of us are in this together. If non-OPEC countries don’t cooperate with us, there is little that can be done,” Alison-Madueke noted.
She had earlier stated that the US shale oil has had a considerable impact on all major oil producing economies.
She explained: “It is a major game changer for all of us across the globe and we are having to deal with that, and for Nigeria as you know, as our major export destination.”
On Nigeria’s contingency plan, she said: “I think quite clearly, we have to look at setting up an enabling environment, we have to readdress our enablers to ensure that we have access to other markets other than the major market of North America, which has now been shut to us with the advent of the US shale oil and gas.
“To do that, we have to look very stringently again at the Petroleum Industry Bill to ensure that the enablers are there, even though it is under the purview of the parliament – so that we can be more and more competitive.

“The current fall has been sustained, so we hope that the balances level out very quickly but while this happens, we really have to ensure that we are competitive, particularly in terms of end-user markets.
“Nigeria has no recourse at this point in time other than to fully develop our gas infrastructure for domestic use and I think that we are pushing ahead with that in all ramifications,” she said.
Also in his reaction to OPEC’s decision, the Group Coordinator, Corporate Planning and Strategy of the Nigerian National Petroleum Corporation (NNPC), Dr. Timothy Okon, said Nigeria is a price taker and not a price setter by any means and will make the most of the situation.
“The market would do what it does. We need to do what others are doing, which is strategic marketing of our crude and through that we can maintain value as much as possible.
“I think there is a general consensus that the market is over supplied but from the analysis that I have seen, it is believed that over supply will be significantly reduced next year as demand will balance supply later next year,” Okon said.

He added that the first quarter of next year will be good to do a re-appraisal of the situation, stressing, “With a growing global economy, I think demand will pick up next year. Overall, I don t think the over supply is too much of a problem.”
In a related development, the federal government is unlikely to consider any compromise on the fiscal regime laid out in the long-awaited Petroleum Industry Bill (PIB) on oil sector reform, as Alison-Madueke yesterday appeared to shrug off responsibility for the delay in the passage of the bill that has deterred key new investment in the oil sector, reported Platts, a leading provider of energy and metals information.
It has been suggested that lower oil prices could force the federal government to seriously consider making concessions on the proposed higher fiscal regime in the new law, which is now six years in the making.
But Alison-Madueke, who was speaking to reporters ahead of the OPEC meeting in Vienna, said the bill was now “out of my purview”, and rests solely with parliament.
“That bill is with the National Assembly, the parliament, it is not under my purview so it is not for us to prescribe. But we do have to look at all possible enablers at this time in view of the sustained downward trend in oil prices,” the minister said.

The bill proposes to hike the government’s share of revenue to at least 73 per cent from 61 per cent, a move industry executives say will halt investment in deep offshore projects and risk reducing Nigeria's oil output by 25 per cent by 2022. But the government has maintained that previous terms introduced in 1993 were based on an oil price of $20 a barrel, and are no longer realistic.
Oil is the key driver of the Nigerian economy and accounts for up to 90 per cent of dollar earnings, but production has stagnated in the past two years and is currently averaging 1.8 million b/d, Alison-Madueke said.

The drop in output is largely due to widespread crude theft and a slowdown in investment.
The 30 per cent slump in oil prices has also forced Nigeria to revise downwards its oil price benchmark for revenue calculations in its 2015 budget to $73/b.
“We should be producing 2.5-2.6 million b/d so we are already facing very stringent cuts,” the minister said.
Nigeria in particular has suffered from the boom in shale oil production in the United States.
Barrels stopped flowing in July for the first time on record from an average of 64,000 b/d in the first eight months of 2014, according to the US Energy Information Administration (EIA), and compared with a full-year 2013 average of 239,000 b/d.
The West African nation hopes to offset the impact of the drop in US sales by increasing exports to China and India but faces competition from Middle East producers vying for key Asian markets.
The minister said Nigeria was more focused on Asian markets rather than European outlets but was looking at various alternatives for its sweet, light crude barrels.
“We are expecting to do a lot more work with our Asian colleagues on the export side. We are particularly targeting India and China as well. At the moment the Asian demand is a lot stronger than Europe,” the minister said.

“But we are open at this point in time and we are having discussions with all possible takers. End-user markets are very important and we are trying to develop those stringently at this point in time.”
Analysts say Latin America crude is fast displacing West Africa crude in both China and India, a development that could see West Africa face a significant demand shock next year